Reinventing Edison

by Jay Stuller | Illustration by Otto Steininger

It's up to business to change the way America powers up.

JAY STULLER is a veteran of both magazine journalism and corporate communications, and a contributor to this magazine since the mid-1980s. His last article was “The Changing World of Business Journalism,” the July/August 2008 cover story. He can be reached via www.jstuller.com.

With sincere apologies to Kermit the Frog, it’s now all too easy being green. A multitude of emerald-hued actions can ostensibly cause the carbon footprints of individuals and institutions to shrink faster than Greenland’s glaciers: buying hybrid cars, eating locally grown food, devoting a slice of discretionary earnings to thoughtfully greenish projects. Above all, the sheer goodness of going green is an orthodoxy beyond dispute.

However, it doesn’t take an Oscar the Grouch to view many “I’m saving the planet” boasts as naïve, tiresome, and even troubling, due to the symbolic-but-ineffectual nature of some and the downright disingenuous intent of others.

Granted, there are a host of human behaviors that have an adverse impact upon the Earth’s biosphere. Emissions from the energy that’s produced and consumed by developed and developing nations — however critical that energy is to our well-being — contribute to climate change, which is almost certain to generate a range of problematic consequences.

The most popular solutions are, alas, a roundup of the usual suspects. Sure, using renewable energy from solar panels is more environmentally benign than burning fossil fuels. Converting waste from farms and dumps into combustible methane turns liabilities into an asset. And then there’s T. Boone Pickens’ widely publicized plan for blanketing the Great Plains with wind turbines, which has earned the old oilman a freshly relevant public life — and a new best friend in Al Gore.

The problem is that each and every one of these propositions is missing a paramount prerequisite. After all, into what form of power is most conventional and nearly all alternative energy converted? Consider that the most important business sectors of the future economy will rely on Digital Age devices, which need pure and reliable energy that probably shouldn’t come exclusively from sources easily interrupted by calm or clouds. Finally, there’s the cold fact that America’s power infrastructure is aging, inefficient, increasingly unreliable, and regulated in a manner more pertinent to the 1920s than the twenty-first century. Going green?

It’s about electricity, stupid.

“Quietly and without a great deal of public or government concern, the infrastructure of the nation’s massive power grid is crumbling,” explains Kurt Yeager, former head of the Electric Power Research Institute and now executive director of the Galvin Electricity Initiative, a nonprofit started by former Motorola chairman Robert Galvin.

“The grid is comprised of technologies that Thomas Edison would recognize in an instant. Most of its generation plants, millions of relay switches, controls, transformers, and power lines are nearly fifty years old, and near the end of their useful life. Even worse, they’re incorporated into an industry that stopped innovating in the 1950s, and which has little incentive under current regulations to replace the obsolete equipment with anything more modern.”

Its age notwithstanding, the grid is a formidable network. A few years ago, the U.S. National Academy of Engineering ranked the electrical system as the greatest engineering achievement of the twentieth century. It was abundant and relatively inexpensive commercial electricity that enabled mass production and communications. If it weren’t for electricity, refineries couldn’t manufacture transportation fuels out of oil.

And we wouldn’t have computers and the Internet if this form of power — which moves at, of course, the speed of light — hadn’t been harnessed and channeled. And yet the juice driving the furnace motors that heat homes, light buildings, and keep television sets glowing is so ubiquitous that few of us consider or know much about what’s involved on the other side of the wall socket. In general, it’s not an encouraging sight. “Even though electricity at its end use is by far the cleanest and most versatile form of energy ever known,” Yeager explains, “the industry itself is rapidly turning into one of the most obsolete sectors of the economy.” And that vulnerability has a huge impact on business.

For example:

The electricity system is remarkably unreliable. While massive failures — such as the great Northeast blackout of 2003, which plunged fifty million people into darkness and cost the U.S. economy more than $10 billion — are rare, the system is about as stable as the Dow Jones average. Each day, roughly 500,000 Americans spend at least two hours without electricity in their homes and businesses. Brownouts, power spikes, and even minor blips of one cycle, or one-sixtieth of a second, can bring high-tech production lines to a halt. These electrical impurities and failures cost American business at least $150 billion a year, a stunning burden atop other economic infirmities that are ultimately passed on to all of us in the costs of everything we buy.
The system is highly inefficient. While nearly half the electricity Americans use comes from conventional coal-fired plants, more than 60 percent of the energy in each ton of coal is lost into the atmosphere through smokestacks and cooling towers in the form of heat, emissions, and warm water. When electricity from coal, nuclear, or hydroelectric plants is moved long distances over transmission lines made from copper cables — just like it was a century ago — still more power is lost as heat, at times up to 10 percent of what’s being carried. In homes, telephone chargers and “instanton” TVs bleed electricity even when not in use — vampires that devour an average of 7 percent of a household’s total consumption. In some cases, more than 90 percent of the thermal units that go into electricity never light a room or run a motor. And it’s a waste that will affect the investment return — and economic success — of every alternative power system developed.
Nearly a quarter of the total investment in power generation is devoted to providing electricity for peak periods of demand, which occurs about 5 percent or less of the time. No other business or industry would survive if that much of its capital were employed so seldom or inefficiently. And yet it’s a widely accepted systemic quirk of the electricity business.
A product of another time, the electricity system is run as if the year were still 1920. Controlled primarily by state-regulated monopoly utilities that still operate under legacy New Deal policies, the business is much like the old monopoly telephone system, when rotary-dial phones came only in black and were owned by the phone company and rented by consumers and businesses that legally had no other option. Electric utilities are compensated with a fixed return for how much they invest in facilities to meet maximum power demands, and by charging consumers for the average cost of providing power over a period of time. There are virtually no incentives to give consumers information on the variable costs and, therefore, choices on when and how much to use, or to provide innovative services and devices similar to those that flowed out of the telecommunications revolution. The result is major wastes of electricity and consumer money.

The Edison Paradox
Outside the window of my home office, at this very moment, my friendly neighborhood meter-reader is walking down the sidewalk on his monthly appointed rounds to check how much natural gas and electricity we’ve used since his last visit. The calendar on my iPhone confirms that it’s 2008. This juxtaposition is a clear characterization of the anachronistic nature of electric utilities. So just who and what are going to bring change to such a whopping and entrenched problem?

“In a more perfect world, we’d see government and regulators leading the way on changing the system,” says Yeager, who also concedes that writing congressmen and exhorting an industry to change of its own volition is pretty much a wild goose chase. “In reality, only business has the capabilities to bring on the transformation. Bob Galvin and I believe that only self-organizing entrepreneurs who create new businesses that benefit consumers can generate the pressure that leads to regulatory reform, which in turn would stimulate even more innovative business.”

Full disclosure requires me to inform readers that I helped Galvin and Yeager with a new book, published last August by McGraw-Hill. Called Perfect Power: How the Microgrid Revolution Will Unleash Cleaner, Greener and More Abundant Energy, it’s an outgrowth of the Galvin Electricity Initiative. While describing the creation and evolution of the electrical system, its great inefficiencies and increasing unreliability, the book suggests a pragmatic path forward. More important, the book and the Galvin initiative articulate how and why business must take the lead on reinventing the system.

Oddly enough, a battle around the shape and structure of the electrical system has been waged before. At the close of the nineteenth century, Thomas Edison believed in a model of building electrical plants near the end consumer and supplying them with relatively safe direct current. Several of his rivals — including Nikola Tesla, George Westinghouse, and Samuel Insull — envisioned the advantages of scale by constructing large generation plants near the source or delivery point for coal, and shipping electricity long distances over wires, using alternating current pushed along by high voltage or pressure, which was then stepped-down by transformers for distribution and end use. While more dangerous than direct current, the alternating current from one big plant could replace many dozens of the smaller, Edison-style units and keep pace with electricity demand that was then doubling every decade.

This model enabled Insull — who ran the company that eventually became Commonwealth Edison — and others to expand the electrical service throughout the United States and offer it to consumers and businesses at evercheaper rates. In the face of such obvious social and economic benefits, state governments granted utilities monopoly power, in return for relatively benign regulatory control that guaranteed a profit based simply on producing and selling as much electricity as possible. This worked well when every new power plant was cheaper than the one before. But those days have been gone for nearly half a century.

(This is, of course, a shorthand version of what happened. There are several excellent books that cover what is a truly great American saga, including Richard Munson’s From Edison to Enron, Phillip Schewe’s The Grid, and Vijay Vaitheeswaran’s Power to the People.) Paradoxically, the most interesting twist to the story is that Edison had much of the basic idea right. That is, a system of “distributed” electricity generation has several advantages over one that’s centralized, even though the technologies to make it so didn’t exist a century ago. Today, technology has caught up with Edison, but the incentives and regulations haven’t.

An equally important point is that Edison famously treated inventions as a springboard for still more new products and services that consumers did not expect, but most always found useful. The continuous quality improvements and innovation that Galvin inculcated at Motorola come out of that tradition. Insull and company created a system that supplied electricity, and that was that.

On a Smaller Scale
To solve many of the problems of today’s electrical system, and gain the maximum out of investments in alternative energy sources, Galvin and Yeager believe that we must essentially reinvent Edison. And innovation will come primarily through developing “smart microgrids” and incorporating them into the existing bulk electrical system.

“The only way that we can embrace renewable energy on a large scale is to make the entire grid more intelligent,” Yeager explains. “That means replacing analog switches with modern digital controls and communications in the existing bulk power grid. It means the development of thousands of microgrids that are widely distributed, that are most often locally powered with alternative energy, and that work with the main grid to balance natural fluctuations in wind and solar power. The business incentives today must be based on delivering the most reliable and valuable customer service, not on maximizing the sale of dumb but expensive energy. In today’s economy, the emphasis must be on balancing electricity supply and demand to optimally meet each consumer’s needs.”

Capable of serving a complex of buildings, neighborhoods, towns, or universities, microgrids not only feature independent generation systems but can store backup power in batteries. Moreover, when linked together by smart computer controls, the interwoven microgrids can actually self-heal a localized outage almost instantly — and certainly much faster than humans watching control panels. The idea of providing pure and uninterrupted power is a big part of what compelled Galvin to start his eponymous initiative.

(In fact, the Illinois Institute of Technology in Chicago is working with Galvin and Commonwealth Edison to become one of the first smart microgrids of its type and size, a project that will save the school money and provide uninterruptible power. The U.S. Department of Energy has also awarded the school a $7 million grant because its microgrid design provides a unique prototype for rapid smart-grid implementation across the nation.)

While the current grid provides electricity with 99.9 percent reliability, Galvin believes it’s possible to surpass six-sigma quality and provide nine-sigma power — 99.9999999 percent reliability — where it’s wanted and needed. And while this quality of reliability and service will be sorely needed as electronics grow increasingly sophisticated and sensitive, there are other benefits from a network fed by bulk and microgrid power sources. For example, a decentralized power-generation system may reduce the need for as many new nuclear or cleanburning coal plants as might otherwise be necessary, an environmental and financial benefit for all. It can also reduce the investment in plants needed for peak power — in effect, replacing megawatts with negawatts — so long as consumers can get information to make choices about electricity use during these times.

In microgrids, houses and commercial buildings would have smart meters, enabling them to see what electricity is costing them in real time. Most metering systems today are one-way and don’t provide price signals. At least a dozen companies are already developing advanced meters, hoping to find a market with utilities or directly with consumers. “In a future microgrid,” Yeager explains, “a consumer might preprogram the household to raise the temperature of the refrigerator and in the home when the price of power goes over a certain point. Of course, this transparency would also mean that utilities would be forced to provide real-time price information. Utilities do this for big industrial customers, so there’s no reason it can’t also be done for regular consumers.”

The benefits of smart microgrids to communities and their residents can easily be at least four times their cost on an annualized basis. This reflects the reliability and energy savings, as well as new business and job-creation opportunities. Beyond these advantages are economic opportunities for consumers to make money as power producers and carbon reducers, creating an alluring market for independent entrepreneurs.

There are, however, profound barriers to microgrids, which in most jurisdictions are not legal. Indeed, laws intended to protect regulated utilities prohibit private parties from stringing a power line across a public street, or putting a pipeline beneath it. While several utilities allow consumers with solar panels producing excess power to “zero out” their energy costs, the firms will not pay for additional production and thus take it for free. This is why an increasing number of communities are lobbying for “grid divorcement.” Meanwhile, a number of businesses are simply working around the obstacle, and without a huge investment in new equipment.

A company called EnergyConnect Inc., for example, is helping the owners of more than nine hundred buildings in Pennsylvania, Illinois, Maryland, and Virginia — states served by a single independent system operator that coordinates the operations of several utility companies — to greatly reduce energy costs. These otherwise-ordinary office buildings are “trained,” if you will, to behave in a more energyefficient manner, and in a sense comprise a pseudo-microgrid.

“Big buildings have natural thermal properties that often go unused,” explains EnergyConnect CEO Rod Boucher. “When power is cheap at night, you can either heat or cool a building inexpensively, and then let [the temperature] slowly drift up or down during the day, when power is more costly. For EnergyConnect, this business is simply a technology play; we have proprietary software that links up the aggregation of buildings and gets them to make responses to fluctuations in the electricity demand and its price. Those little automated decisions on heating, cooling, and lighting add up to significant money for the customers.”

Yet another key to reinventing Edison’s ideal system: a free and competitive retail electricity market. “In a truly open market, like we have in telecommunications and most other industries, innovative entrepreneurs have incentives to provide high-value services and products to consumers,” Yeager says. “Utilities still view regulators as their key customers.” But again, the growth of solar-panel installation companies is starting to undermine utility-company hegemony, and it’s an example of how entrepreneurs can kindle a movement toward regulatory change.

Changing the Rules of the Game, Honorably
Microgrids and alternative and renewable energy sources are unlikely to meet the nation’s electrical needs anytime soon. Even with conservation through the interwoven system, the evolution of plug-in electric automobiles will inevitably increase demand. Consequently, the country will need electricity from nuclear plants, solar panels on houses, and T. Boone’s wind farms. And utilities, insist Galvin and Yeager, will be an important component of this future.

We live in a society in which entrenched businesses are all too easily demonized by those who feel they take advantage of consumers. But as Galvin kept insisting during the writing of Perfect Power, “Utility leaders are simply responding to the rules of the game that were created long ago. The same was true of the telecommunications industry, which after the cell phone was invented at Motorola opposed deregulation. But we worked to have the rules of the game changed, honorably. And in the end, the companies that ended up benefiting the most were originally the strongest opponents.”

A number of electric utilities have already made attempts to develop alternative energy and lower their carbon footprints. Exelon, the Chicago-based parent company of Commonwealth Edison, has put a huge focus on conservation and efficiency, which is the cheapest and fastest way to lower emissions. San Francisco-based Pacific Gas & Electric is asking some of its customers to enroll in a “smart” air-conditioning program, paying them $25 for the right to install a switch or thermometer that could be automatically controlled by the utility during heat waves. It’s a semi-smart meter and yet one that still grants consumers no real control.

Given the social pressure around going green, consumers are unfortunately gullible targets. A recent BusinessWeek article, for instance, reported on the 750 utilities that offer customers a chance to pay a premium on their electric bills so as to generate “green power.” More than 600,000 U.S. households have signed up for such programs. The utilities are getting “environmental bragging rights,” the magazine suggested. But roughly half of the money paid into these programs is devoted to advertising and administrative expenses, or to wind and methane recovery programs that already are in place.

That so many people have such an abidingly strong faith in green programs is instructive, since concern for the environment has taken on a slightly religious cast. Since our distant ancestors lived and died at the whims of omnipotent nature, there is probably intuitive sense behind such beliefs. But if the environment is in fact a kind of a religion, there is a good case to be made that the electrical system is the house of worship — and the pews and steeple are in dire need of repair, as is the building’s foundation. Since wishes won’t make it happen, entrepreneurs are needed to lead the work.

To paraphrase Kermit, it isn’t really all that easy being really green.

A Smart European Future by Manuel Sánchez-Jiménez

In the European Union, the fundamental method of operating the electric distribution grid has not changed significantly during the past hundred years, while the number of customers and their needs have grown exponentially. The time for halfmeasures and patchwork solutions is over. To tackle this enormous issue,we aremoving toward a sustainable internal electricity market with a more diversified generation structure, one in which small units will seek integration into larger electricity grids. In 2006, the European Technology Platform SmartGrids — a stakeholder group sponsored by the European Commission — laid out plans for a network managed by distributed control, in which every node in these smart electricity networks will be awake, responsive, adaptive, price-smart, ecosensitive, real-time, flexible, humming, and interconnected with everything else. The changes will not come cheap: Massive investments in transmission and distribution networks are being planned across the EU — up to €200 billion by 2020, with up to €90 billion directly related to investment in smart-grid technology.

In this transition, new and emerging markets are expected to cover generating capacity, reserve capacity, and ancillary services. Some of these services are already handled by informal trading systems; others will be based on the full potential that smart energy devices can provide when they are assembled together in a system. Themost distinguishing feature of future electricity grids in Europe will be users’ ability to play an active role in the supply chain. The key to success for utilities adjusting to this change will lie inmitigating losses and investments on the generating side and advocating for new tariff structures, opening new win-win possibilities for the electricity market. Furthermore, electricity tariff structures — such as real-time pricing or critical peak pricing — and load control are expected to lead to further reduction of energy consumption. The one lesson learned so far, based on the more than thirty million smart meters installed in Europe, is that much of the success of smart metering as a means of reducing domestic energy consumption depends on how the information is packaged and presented to the user.

This evolution will shift the responsibility of electricity production to amuch larger number of actors who generate on amuchmore smaller scale; it will mean that the responsibility for the control and transmission of electricity is also shifted to a smaller scale. Another feature of future electricity networks will be the use of more intelligent control and less hardware such as lines and generators to provide the required level of reliability for power supply and to improve the overall cost/benefit ratio. Sophisticated control and communications technologies will be required to ensure smooth operation and the establishment of new business models for power distribution, as well as the development of advanced energy-storage technology, power electronics, and specific superconducting devices.

How quickly will all this happen? A single leap from the current network to this vision is not credible, but taking the period beyond the lifetime of the current generation of equipment — say, 2015 to 2020 — enables trials and development of the concept described above.

Granted, from a technical point of view, the idea of smart grids remains rather speculative, and the biggest investment needed to achieve it will be a research and engineering effort to establish what kind of communication technology and control solutions could support this vision at a European-wide level. Key steps have already been initiated across the continent during the last few years under European and national research programs, but a lot of work remains to be done over the next decade for the design, validation, and implementation of the appropriate architecture and control strategies. Themajor challenge is organizing the design of the network structure, as the processwould have to involve a large number of stakeholders at a pan-European level.

The implementation of the energy and climate policy and instruments adopted by the European Union in January 2008 will require efforts, but it will imply huge opportunities too, for all sectors. European business, and the technology sector in particular, will be key partners in the environment that will emerge.

MANUEL SÁNCHEZ-JIMÉNEZ works at the European Commission’s unit on Information and Communication Technologies for Sustainable Growth and heads actions on ICT for Energy Efficiency. The views expressed in this article are his sole responsibility and do not necessarily reflect the views of the European Commission.

A Smarter Grid

Imagine having electrical service so advanced that it could resolve power disturbances before they happen, deliver the exact amount of electricity you want, run on clean, renewable energy, and save you money. Sound too good to be true? Welcome to the brave new world of smart-grid technology — a sophisticated and efficient energy superhighway to replace the U.S. electrical industry’s aging, badly beaten path. The smart grid would effectively upgrade the country’s current unreliable and costly electricity distribution network with cutting-edge two-way computer-generated distribution and monitoring innovations. In short, it would radically advance the distribution of electricity in the twenty-first century.

When will smart-grid technology become available? Sooner than you may think. In 2005, Houston-based CenterPoint Energy in Houston installed ten thousand smartmeters in customers’ homes. And, inMay 2008, Xcel Energy began a $100million overhaul of Boulder’s analog system, which will make Boulder the nation’s first fully integrated smart-grid city. Meanwhile, Pacific Gas and Electric is planning the country’s largest smart-meter initiative: upgrading more than ten million customer meters in northern and central California over the next five years.

To understand the dynamics of this innovation, here are some of its most important features:

TWO-WAY COMMUNICATION. Energy information will flow back and forth through a two-way portal, allowing consumers to control their electricity costs and consumption with pinpoint precision.
SELF-HEALING. Sophisticated monitors and controls will anticipate and instantly respond to system problems to avoid or mitigate power outages and power quality problems.
CLEAN ENERGY. Clean renewable energy, provided in quantities far beyond what is possible with today’s power system, will allow consumers to significantly reduce their carbon footprints. Consumers would actually be able to choose the power source they want to use — wind, solar, or coal.
SECURITY. Advanced computer-generated sensors will rapidly identify and respond to man-made or natural disasters.

– DANIEL K. EISENBUD

The Presidential Grid

Although his first day in the Oval Office presents Barack Obama with several issues demanding immediate attention — including a couple of wars, a decompensating economy, and all of that annoying healthcare stuff — the state of the nation’s electrical generation, transmission, and distribution system is actually on the new president’s radar. During the months leading up to the November election, Obama’s campaign articulated a nuanced and comprehensive set of messages around energy conservation and efficiency, including the need for a national investment in a smarter electrical grid. In fact, the candidate’s energy position papers even called for the creation of a Grid Modernization Commission, to facilitate the creation of a more reliable and secure electric infrastructure.

Meanwhile, former Vice President Al Gore and his Alliance for Climate Protection finally began emphasizing the critical need for a unified power grid, which had not been part of Gore’s Inconvenient Truth climate-change crusade and went largely unmentioned during his subsequent promotions of wind, solar, and other renewable energy sources. Of course, the excruciatingly slow evolution of this electrical epiphany is probably natural, since a crumbling infrastructure that’s barely visible simply can’t compete for attention against starving polar bears and financial meltdowns. But the issue is now getting its due.

As Gore wrote in a post-election New York Times opinion piece, “New high-voltage, low-loss underground lines can be designed with ‘smart’ features that provide consumers with sophisticated information and easy-to-use tools for conserving electricity . . . and reducing their energy bills.” Gore also estimates that building a modern grid would cost $400 billion over four years, an expense that’s modest compared to business losses “due to cascading failures that are endemic to our current balkanized and antiquated electricity lines.”

(While Gore puts the losses at $120 billion annually, the Galvin Electricity Initiative figures it’s $150 billion; either way, the change is anything but chump.)

In any event, Obama clearly recognizes that business wants and needs a comprehensive new energy plan, especially one with certainties about restrictions of carbon emissions. His campaign’s position demonstrated a sophisticated understanding of smart grids, the benefits of managing and reducing peak loads, distributed generation and electricity storage systems, and all the controls needed to make a reinvented system hum with pure efficiency. The president is also acutely aware that developing clean, reliable, and homegrown energy, distributed and controlled by new technologies, creates jobs that can stimulate an economic recovery — a smart beginning for a new administration that is taking on a world full of hurt.

– J.S.

The Conference Board Review - Ideas and Opinions for the World's Business Leaders

Reinventing Edison

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